50 Shades of Greenwashing: Talk Clean, Act Dirty
Plant-milk brand Oatly recently made headlines after agreeing to a USD 9.3 million greenwashing settlement for a lawsuit alleging that the company artificially inflated its stock price with false sustainability claims. Oatly raised USD 1.43 billion in its 2021 IPO and its USD 17 price tag gave the company a valuation of USD 10 billion. The stocks surged within the first month, reaching an all-time-high of USD 28.93, before slowly plummeting – today the stock is valued at less than USD 1 with a market cap of USD 580 million.
Kai Jochims, an investor in Oatly, first filed the suit and alleged the trading price for the company’s US shares fell by around 9% after a short-seller accused the group of greenwashing a few months after its IPO. Jochims accused Oatly of fraud due to certain claims included in the business’ IPO registration statement and an investor presentation on its website. According to the investor, Oatly’s misleading claims include assertions about its finances, general greenwashing, and falsehoods about its growth in China.
Since the late 1980s, the practice of greenwashing has already started taking place, especially within the fossil fuel industries (including coal, oil, gas, utility, and car companies) with libertarian businessmen working with public relations firms to appear greener by waging a multi-decade, multi-billion dollar campaign of lobbying, disinformation, and propaganda to sabotage science, confuse the public, and undermine climate and clean energy policies.
One of the most notable early perpetrators of greenwashing was oil company BP, who hired Ogilvy & Mather to implement a USD 100 million-a-year marketing campaign between 2004 to 2006 that introduced the idea of a carbon footprint before the term was even a common buzzword. The company unveiled its “carbon footprint calculator”, enabling people to assess how their normal daily life — going to work and buying food— is largely responsible for heating the globe, shifting the responsibility and blame for climate change to the general public, despite BP being one of the largest carbon producers in the world.
The Origin of Greenwashing
The term greenwashing was coined back in the 80’s when American environmentalist Jay Westerveld published an essay titled “It All Comes Out in The Greenwash”. While on a surf trip in Fiji, he snuck into one of the resorts to nab clean towels and saw a notice asking customers to reuse their towels*, noting the irony of the matter considering said resort was focused on expansion at the time, with what looked like little regard for the surrounding natural area. ‘We’ll destroy the environment, but make sure you reuse your towel’.
*) As noble it sounds, the reuse your towel’ campaign that seems to be dominating the industry does little for the environment, and a lot more for the hotels’ bottom-line.
Today, the term continues to be used to describe the dishonest practices often used by businesses to portray themselves as environmentally friendly corporations, seemingly supporting sustainability concepts, even though they continue activities that might actually be harming nature. Given that the term originated nearly 40 years ago, the practice is more prevalent than ever and growing vastly more sophisticated.
The Modern Day Minefield
The proliferation of sustainability concepts worldwide brings with it many challenges. With consumers becoming that much wiser and aware of the damage their actions can cause, they are actively searching out ‘sustainable’, ‘green’, and ‘eco-friendly’ products. The increased focus on sustainability in turn has put a lot of pressure on brands to appear eco-friendly, leading to a surge in greenwashing attempts.
Many companies, eager to capitalise on this trend, are more focused on boosting the image of sustainability rather than implementing tangible actions to reduce their environmental footprint. The danger is that in order to beat the competition, it becomes all the more tempting for brands to tweak their wording here and there, often using words without fully understanding the impact they can have or realizing that by using them, they themselves are in fact greenwashing.
In addition, there is also the growing pressure from investors, who are focusing their attention on ESG issues and stakeholder capitalism. CEO of BlackRock Larry Fink published an open letter that emphasized the importance of delivering long-term, durable returns for shareholders and how transparency around a company’s planning for a net zero world is an important element of doing so.
Many institutional investors are also aligning their portfolios toward better ESG performance, signalling a different approach from focusing on responsible funds, and instead seeing ESG issues as fundamental to the performance for all investments. Some investors are even limited to investments on companies with a certain ESG rating. Coupled with the fact that ESG ratings are primarily self-reported, this pattern has given rise to a system where companies can superficially endorse sustainable practices without demonstrating concrete results, thus succumbing to the temptation of greenwashing.
Consumers today face a barrage of messaging from companies hoping to profit from increased concern over environmental issues. Social media appears to be the “new frontier” of climate disinformation and deception. A study by Harvard University noted that for most oil, airline and auto companies, ‘Green Innovation’ is now the dominant master narrative on their social platforms with over 40% of their posts highlighting their commitments in environmentally-conscious, low-carbon technological innovation. Meanwhile, less than 5% of their posts actually describe the core business they are operating and the outcomes from said practices. Unfortunately, many of these environmental promises are often exaggerated or deceptive, pointing to greenwashing on an industrial scale.
What used to be a marketing tactic employed by natural resources and auto companies, greenwashing is now a norm across various industries. The bottled water industry, for example, spends millions of dollars trying to convince the public that bottled water isn’t only good to drink but is also good for the planet, leveraging images of crisp snowy mountains and pristine lakes to sell its products. Over the past few years, companies has claimed that the shape of their bottles are more efficient, that its recycled plastic bottle is more environmentally responsible, and that its use of plant-based plastics is less damaging to the planet. During Earth Day 2013, the International Bottled Water Association even doubled down on the sustainability claims, announcing that bottled water was “the face of positive change” because the industry was using more recycled plastic for its bottles, when in reality, only about 31% of plastic bottles end up getting recycled and the water that goes into those bottles is often equally unsustainable, bottling from springs in areas that are facing heavy droughts.
that can be captured in recycling infrastructure. Critics were quick to point out that only 9% of the world’s plastic is recycled, so the company shouldn’t assume all the lids would be recycled. Further, the US exports about one-third of its recycling to developing countries, passing on its environmental responsibility to poorer countries. In 2018, Starbucks debuted a straw-less lid as part of its sustainability effort to reduce single-use straws. However, several studies later found out that these lids actually contain more plastic than the old lid-and-straw combination. The company acknowledged this claim but argued that it is made from polypropylene, a commonly-accepted recyclable plastic.
In 2019, H&M launched a line of “green” clothing labelled “Conscious,” which claims to use “organic” cotton and recycled polyester. They made use of vague language like “close the loop” and “a conscious choice”, charging customers a premium despite using the same material: fossil-fuel-based synthetics that shed plastic microfibers.
In the past few years, we have also seen major financial institutions engaging in greenwashing strategies, claiming to be actively combating climate change through “green investment” opportunities, when in fact most major banks are still lending enormous sums of money to the industries that contribute the most to global warming, like fossil fuels and deforestations. In 2021, a series of HSBC advertisements started appearing around the UK with the slogan “climate change doesn’t do borders,” paired with images of trees and ocean waves with statements about the bank’s efforts to finance the transition to net zero and help plant 2 million trees. The UK industry regulator Advertising Standards Authority (ASA) later banned this ads after finding out that HSBC has instead been sending USD 130 billion worth of financing to fossil fuel companies in recent years.
In Indonesia, there is not yet a law that specifically addresses greenwashing and there have been no major legal proceedings or claims with regards to it, but government bodies all over the world are working to tackle this ongoing issue. India is the latest country to release a guideline for the prevention of greenwashing by The Central Consumer Protection Authority. Meanwhile, countries like the US and the UK have been working on this for over a decade. The US’ FTC released its Green Guide in 2010, defining terms like "recyclable" and "biodegradable" and explaining how businesses should back up environmental assertions. The SEC has also been taking aim at funds that have tried to exploit investor interest in ESG, ensuring funds are investing in names that accurately reflect its investments or strategies. Government bodies are trying to support consumers by holding companies responsible for greenwashing, punishing those that misbehave through enforcement actions and fines.
The Volkswagen emissions scandal, often known as Dieselgate or Emissionsgate, costed the company almost USD 40 billion in fines, penalties, financial settlements and buyback costs across the years. In 2009, Volkswagen launched a mega marketing campaign to promote its “clean diesel” cars across various print and televised ads, including in one prime-time Super Bowl commercial. The company touted a drastic reduction in the tailpipe emissions in its new VW and Audi models. Six years later, the US Environmental Protection Agency (EPA) discovered that VW had installed a “defeat device”, a software allowing it to cheat emissions tests, in 11 million vehicles worldwide. The automaker’s so-called clean diesel were in fact producing nitrogen oxide emissions up to 40 times the legal limit.
Deutsche Bank-controlled investment firm DWS was ordered to pay USD 25 million to settle charges over misstatements regarding its environmental, social, and governance (ESG) investing and failures in policies designed to prevent money laundering by the SEC. That said, not all companies are “evil”. There are many reasons as to why companies may fail to implement their sustainability goals and be perceived as greenwashing. Ambitious yet unattainable goals often serve corporate executives’ agendas rather than the interests of the corporation, and thus implementation becomes less and less plausible. But whatever the reason may be, it is critical for companies to understand that greenwashing not only leads to fine and penalties, but also destroys customer satisfaction and trust, and by extension, will harm reputation and brand loyalty, as well as customers’ purchase intentions and future purchases. They also increase consumer cynicism, which can hinder the success of genuine environmental mitigation efforts.
Outdoor clothing brand Patagonia, for example, has been dedicated to protecting nature since its inception. Patagonia has donated a portion of its profits to environmental causes, switched to organic cotton, and implemented various sustainable initiatives like LEED Certified buildings and the Common Threads Garment Recycling Program. Their “Buy Less, Use More” campaign, including the “Don’t Buy This Jacket” ads, emphasized the importance of product longevity over disposability, leading to a significant increase in sales and brand goodwill. While the company has actively tried to include evidence in its claims, the rise of greenwashing notoriety has resulted in a lot of online skeptics questioning the legitimacy of genuine efforts.
The Push for Transparency
We have skimmed through some pretty huge greenwashing cases here but greenwashing is often far less sensational and far harder to spot, especially in a developing country like Indonesia where many consumers are less environmentally-conscious and clear regulations specific to greenwashing are yet to be in place. We regularly encounter misleading sustainability claims on the packaging for our everyday household items but also in exaggerated sustainability initiatives promoted by corporations. With the country’s weak law enforcement and insufficient protection of the public from greenwashing practices, it is essential for environmentally-conscious consumers to develop the necessary skills to spot greenwashing and identify brands that are making genuine sustainability efforts.
On the other hand, the best way companies can successfully navigate this increasingly fraught environment is to build a solid foundation beneath their green claims. The businesses that are going to survive the current wave of green scrutiny will be those that can deliver verifiable data, in many cases signed off by third-party assurance providers. Third-party certifications will become more crucial for corporations–think the Forest Stewardship Council (FSC) Certification for lumber practices, the Route to Net Zero Standard for carbon emissions, the Leadership in Energy and Environmental Design (LEED) certification for building developments, Green Seal or the EPA Safer Choice certification for household products. Gone are the days of vague language like “made with natural/organic ingredients.” Many companies have started publishing details of their sustainability data including their disclosure reporting associated materiality assessments. Only by focusing on the quantifiable aspects of sustainability can businesses ensure that they are living up to their own hype. And the role of the government to support this push will be more critical now than ever.